Wednesday, January 15, 2014

New Zealand dollar does the business | New Fed voter is in favour of aggressive tapering

The New Zealand dollar against the Aussie dollar is now heading into territory that could be described as uncharted, having gone through the support level in the 1.07 region that held it back for a while.

There is every reason to believe that this trend will continue, as pointed out by us here. Prices never go anywhere in a straight line, and this was demonstrated by the little matter of breaking through the most recent support, but this movement is strong and well established. Note also the distance that price is below the 200 period Simple Moving Average (SMA, blue line), and the strong downward slope of that indicator.

New Fed voter is in favour of aggressive tapering

The President of the Federal Reserve Bank of Dallas, Richard Fisher, becomes a voting member of the Federal Open Market Committee this year. This is the body that will decide when, whether and to what degree tapering of US Quantitative Easing will take place. Some remarks made by Mr. Fisher in a speech yesterday might be worthy of note, in light of these facts.

He said he was glad the Fed had begun to taper, but he would have preferred a more aggressive start to this, indicating that double the amount of bond buying reduction would have been more to his liking.

QE, according to Fisher, “had caused a number of asset markets to rise more than economic fundamentals would indicate”. He said that central bank policy had put beer goggles on investors, causing them to act irrationally. Rising stock prices and bond market developments were a concern to him.

'I want to make clear that I am not among those who think we are presently in a 'bubble' mode for stocks or bonds or most other assets,' Mr. Fisher said. 'Markets for anything tradable overshoot and one must be prepared for adjustments that bring markets back to normal valuations,' he said, noting 'this need not threaten the real economy.'

'Were a stock market correction to ensue while I have the vote, I would not flinch from supporting continued reductions in the size of our asset purchases,' Mr. Fisher warned. He said 'as long as the real economy is growing, cyclical unemployment is declining and demand-driven deflation remains a small tail risk, I would vote for continued reductions in our asset purchases, with an eye toward eliminating them entirely at the earliest practicable date.' (Additional reporting by Dow Jones News Wire).

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